Aristocrat Leisure: Goldman Sachs Raises Target Price

Goldman Sachs has lifted its price target on Australian gambling machine maker Aristocrat Leisure (ALL.AU) on growth in its core gaming business and in its digital operations.

The broker's new price target is AUD25 a share, up from AUD22.80 a share. Here's why the price target was raised.

Photographer: Anthony Kwan/Bloomberg

We upgrade our estimates across the US recurring revenue and digital businesses. Within digital, the early performance data from the Cashman Casino App is mimicking that of Heart Of Vegas, which in our view bodes well for its upcoming launch on IOS later in FY17. In addition, we have upgraded our FY18/FY19 estimates for Class II and Class III gaming operations in the US based on Aristocrat’s strong product pipeline. We anticipate the US release of Dragon Link product will go some way in underpinning these forecasts in addition to Aristocrat’s organic product rollout.

Goldman Sachs, which rates the stock a buy, is upbeat about the prospects for Aristocrat Leisure's digital business:

The mix of Aristocrat’s game library with a powerful social technology business has proven to be a successful combination much earlier than we had anticipated, driven by the success of the Heart Of Vegas app. Aristocrat’s online business delivered a standout performance in 1H17, with revenue up +32% to A$172mn and EBIT up 48% yoy to A$75mn. Cashman Casino is the latest gaming app release by Product Madness (100% owned subsidiary of Aristocrat).

Monitoring the app’s progress we note it has already reached ranking figures equivalent to Heart of Vegas driven largely (we suspect) by the availability of ‘Lightning Link’ on the online platform. In our view while there will be some cannibalisation of players across the two apps, the different games available across the two players will drive incremental users and revenue.

Aristocrat Leisure shares are up 49% this year. The stock last traded at AUD23.04 a share.

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